Reverse mortgages are a popular way for seniors to pay off their home loan, reduce debt, and supplement their income during retirement. The eligibility requirements for these loans are fairly simple. Borrowers must be at least 62 years of age, own an approved property, and have a substantial amount of equity in their home. Consumers who meet these requirements are usually able to use a maximum claim amount of $625,500 in order to convert their home's equity into usable funds. However, reverse mortgages, specifically federally-insured Home Equity Conversion Mortgage loans (HECMs), might be subject to a few important changes.
Recent and Future Changes to the Reverse Mortgage
There are two significant changes that might impact a senior's ability to get a beneficial reverse mortgage in the future. The first change is to lenders' ability to screen applicants. Lenders can now increase their underwriting efforts to help them determine whether borrowers are likely to pay their property taxes, homeowners insurance, and maintain their home. Borrowers who pose a large risk can be denied or given certain terms to lessen the risk of the loan.
Currently, while they may do so, lenders are not forced to tighten their eligibility requirements. In fact, in order to serve more borrowers, some lenders may choose not to impose stricter requirements. However, with the option available, many lenders will probably decide to screen applicants a little closer than before.
The Department of Housing and Urban Development (HUD) might also decrease lending limits in 2012. In 2009, the $417,000 HECM loan limit was raised to $625,500 in an effort to help struggling seniors. Right now, this increase is only valid until December 31, 2011. At that time, the higher limit might be extended or adjusted to its original amount. While the Federal Housing Administration (FHA) has said that they have no plans to decrease the loan limit, it is not possible to determine exactly how much longer the higher limit will last.
If the loan limit decreases, consumers who own very high-value homes will need to seek lenders that specialize in jumbo reverse mortgages. While it is possible to get a loan that exceeds the federally-imposed limit, the loan will not be insured by FHA. Larger reverse mortgages are also significantly more expensive, making them a poor choice for some borrowers.
What These Changes Mean to Borrowers
The reverse mortgage industry is changing; that much is clear. While the long-term effects of these changes are not yet known, the financial experts at Financial Planning, a trusted source of online financial news, urge on-the-fence consumers to act soon. With lending limits possibly decreasing in the future, borrowers who hope to take advantage of the $625,500 limit might want to begin the application process before the new year.
However, for borrowers that stand to receive $417,000 or less from a reverse mortgage, the possible limit change is nothing to worry about. Reverse mortgages will be available well into the future. While some lenders might begin implementing stricter eligibility requirements, most seniors will be able to get a loan as long as they meet the basic requirements. Still, for seniors who have been considering a reverse mortgage, now might not be a bad time to get more information.